Awdhesh Singh is teaching live on Unacademy Plus
Consumer Price Index (CPI) and Wholesale Price Index (WPI). Dr Awdhesh Singh, IRS (Retd.) Director, Awdhesh Academy, Former Commissioner, Customs & Indirect Taxes (Central Excise/GST)
Consumer Price Index (CPI) The CPI is a measure that examines the weighted average of prices of a basket of goods and services which are of primary consumer needs like transportation, food and medical care. .CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them based on their relative weight in the whole basket. The prices in consideration are the retail prices of each item.
Wholesale Price Index WPI measures and tracks the changes in the price of goods in the stages before the retail level i.e. at the wholesale level While WPl items vary from one country to other, they mostly include items at producer or wholesale level
WPI in Indian Context WPI index reflects average price changes of goods that are bought and sold in the wholesale market. WPl in India is published by the Office of Economic Adviser, Ministry of Commerce and Industry. The data for WPI is monitored and updated on a weekly basis taking into account all the items that form the index. .The various commodities taken into consideration for computing the WPI can be categorized into primary article, fuel and power, and manufactured goods. In India, WPI does not includes the cost of services
Analysis of WPI Based Inflation .As WPI accounts for changes in general price level of goods at wholesale level, it fails to communicate actual burden borne by the end consumer. WPl is the primary measure that is used by the Indian central government for ascertaining inflation as WPl in contrast to CPI accounts for changes in price at an early distribution stage. WPI index in fact includes all transactions at first point of bulk sale in the domestic market Provisional WPI for all of the commodities is released on 14th of every month The base year for the WPI index has been revised for the seventh time from the earlier 2004-2005 to 2011-12 to better capture changes in the economy.
Articles under WPI Primary articles included for the computation of WPI include food articles, non-food articles and minerals. In the fuel, power, light and lubricants, electricity, coal mining and mineral oil are included. The manufactured goods category encompasses food products; beverages, tobacco, and tobacco products; wood and wood products, textiles; paper and paper products; basic metals and alloys; rubber and rubber products and many others
Weightages under WPI List of commodities in the all India WPI index and also the associated weightages have been revised; at present the different categories included primary articles, fuel and power and manufactured products bear 22.62%, 13.15% and 64.23% weightage. With 102 items in the primary articles, 19 in fuel and power and 555 in manufactured products that cover primarily all items transacted in the Indian economy.
CPI In India The computation of CPI takes into account price changes and the actual inflation that affects the end consumer. .CPI is thus a reflection of changes in the retail prices of specified goods and services over a time period which are traded by particular consumer group. The calculation involved in CPI is done thorough and various categories and sub category on consumption items basis of consumers like urban and rural The overall index of price is calculated mostly by national statistical agencies. It is one of the most important statistics for an economy and is usually based on the weighted average of the prices of commodities. It gives an idea of the cost of living.
Index Used by RBl . Earlier the Reserve Bank of India used WPI inflation to manage monetary policy expectations, it is now the CPI inflation which is largely taken into account. The RBI highlights its inflation expectations based on the CPI inflation data that comes in .It sets targets on CPI Inflation and monitors it accordingly.
Use of WPI and CPI . CPI is a better measurement of what is largely happening with consumer prices. WPI inflation on the other hand is better known to better significance to them.